January 10, 2012,
Philadelphia, PA – While the vast majority
of U.S. lodging markets were suffering from declines in revenue during
the
recent recession, hotels in northeastern Pennsylvania bucked national
trends
and achieved significant growth in RevPAR each and every year from 2007
through
2011. During this period, RevPAR for hotels located in the
Pennsylvania
counties of Bradford,
Lycoming, Susquehanna and Tioga has grown at an estimated
average annual
rate of 14.8 percent. This compares to the 1.7 percent average
annual decline
in RevPAR experienced by the overall U.S. lodging industry during the
same time
frame.

“When
we present these data, most people think it is a misprint,” said Tony
Biddle,
senior consultant in the Philadelphia office of PKF Consulting
USA. “The
remarkable RevPAR growth observed in northeastern Pennsylvania is
largely
attributable to the exploitation of an old resource through the birth
of a new
industry: natural gas extraction from the Marcellus Shale.”

The
Marcellus Shale is a massive geological formation underlying much of
northeastern Appalachia, including northern, central and western
Pennsylvania. In August 2011, the U.S. Geologic Survey estimated
that the
Marcellus formation contains 84 trillion cubic feet (Tcf) of natural
gas,
propelling it to among the largest known shale natural gas “plays” in
the
world.

Drilling and Demand

Prior to 2007, market occupancies in
northeastern Pennsylvania consistently averaged in the mid 50’s.
However,
in recent years, the occupancy rate has exceeded 70 percent and
continues to
increase.

“The correlation between drilling and
lodging demand growth in the early stages of Marcellus development is
intriguing,” Biddle said. “When you array the number of wells
drilled in
the region to the growth in lodging demand, you see a fairly consistent
ratio
of 200 new annual room nights of lodging demand per new well.”

While the 14.8 percent annual growth in demand for the region’s
hotels is remarkable, the 7.8 percent average annual increase in ADR
over the
past four years is even more outstanding given the sluggish economy and
performance of the overall U.S. lodging industry. From 2007 to
2011, the
average annual change in ADR for all U.S. hotels has been negative 0.7
percent.

The Region’s Future

The pace of future drilling activity
is inherently difficult to predict due to a variety of factors, such as
events
in the political and legislative arenas and external macroeconomic
trends. However, the Marcellus Shale Education and Training
Center
(MSETC), a collaboration of the Pennsylvania College of Technology and
the Penn
State Cooperative Extension, has published mid-term projections of
Marcellus
drilling for an area of Pennsylvania overlaying the northeast region.

The
MSETC projections indicate that heavy drilling activity in excess of
1,000
wells per year will continue in the region through at least 2014;
however, the
current rapid growth trend is expected to plateau in 2012. “Given
the
demonstrated historical relationship between drilling activity and
lodging
demand in the region, it appears that the majority of incremental
drilling
impacts to demand in this region have already been felt. That
said, we
note that prior projections by MSETC have underestimated drilling
growth, and
as we move forward, the 2012 outlook deserves close monitoring,” Biddle
advised.

National Implications

An
article in the December 27, 2011 edition of the Wall Street Journal
noted that
the boom in low-cost natural gas obtained from shale is “driving
investment in
plants that use gas for fuel, setting off a race by states to attract
such
factories.” This will continue to push the demand for shale
natural
gas. Therefore, we are seeing the new technological advancements
which
have unlocked shale gas reserves in Pennsylvania being applied in other
regions
of the U.S.

“Hoteliers
should be aware of the new shale explorations that are occurring all
across the
nation. Shale drilling has the potential to not only stimulate
new
lodging markets, like we’ve seen in Pennsylvania, but supplement
existing
markets as well,” Biddle concludes.

To learn more about the impact
of shale drilling on the lodging
industry, please contact Tony Biddle at [email protected]
or (215) 563-5300, ext 29.